Hard to tell if Canada venture capital fund will work: watchdog

David Ljunggren

3 Min Read

OTTAWA (Reuters) - It is hard to tell whether a C$400 million ($315 million) Canadian venture capital fund will boost innovation as intended because there are few ways to measure its effectiveness, the country’s top independent watchdog said on Tuesday.

Canada's Auditor General Michael Ferguson speaks during a news conference upon the release of his report in Ottawa, Canada, February 2, 2016. REUTERS/Chris Wattie

The previous Conservative government set up the so-called Venture Capital Action Plan in 2013 to stem the loss of young entrepreneurs to the United States and to rekindle investor interest in providing start-up funds for new ventures.

Auditor General Michael Ferguson, who reports to parliament, said Ottawa had too few tools to measure its success.

“It is unclear what impact the government’s action plan will have on venture capital and innovation,” Ferguson said in a statement accompanying a probe of the fund.

The system Ottawa set up to assess the fund’s performance is limited and is not due to formally start monitoring progress until 2021, he added.

“This will not provide information early enough to support important decisions such as whether to launch a similar program in future,” said Ferguson.

Monitoring should be boosted to include data on how many companies who received funding were successfully floated, their export growth and financial performance as well as how many new patents they had registered, he added.

The C$400 million was used to establish two new, private-sector-led national “funds of funds” to invest in other venture-capital funds, to recapitalize existing large private sector-led funds of funds and to invest in four existing, high-performing venture-capital funds in Canada.

Ferguson suggested the plan be changed to allow public sector partners to end their participation while the funds were still operating.

“An early exit of the public sector partners could send a strong signal of the private sector partners’ confidence that their returns at termination will be sufficient,” he said.

Ottawa wanted the funds to spur investment in such sectors as digital media, information technology, clean tech and telecommunications.